Domestic Gas and Electricity (Tariff Cap) Bill

Written evidence submitted by E.ON (DGEB05)

Summary

1. E.ON believe the future of energy is low carbon, decentralised and local, with customers in control. We are one of the world’s largest energy companies, and as of 2016, we no longer own or operate large-scale, conventional fossil-fuelled power stations. In 2017, more than 90% of the approximately 4 billion KWh of electricity E.ON produced in the UK was from renewable sources. In the UK, our focus is on customer solutions and renewable energy. We have around 10,000 employees and over 6 million customer accounts.

2. In 2017, households in Britain had a record number of energy suppliers to choose from, more than 60, and a record 5.5m customers choosing to switch supplier, with many more switching products with their current supplier. Nearly three in ten (28%) of switching in 2017 was to small and medium-sized suppliers, whilst seven in ten customers engaged with the market and made the decision to switch to a larger supplier.

3. E.ON supports longer term protection for vulnerable customers. E.ON recognises that not all households are able to engage in a competitive energy market effectively and should be given additional support to ensure they are not unfairly disadvantaged.

4. We believe this support can take the form of:

a. A longer-term price cap for vulnerable customers. This needs to be set carefully so that it does not make these customers unattractive to suppliers. Some suppliers have a much larger proportion of customers on the Priority Services Register. The higher costs associated with supplying energy to these customers needs to be reflected in the design of the cap.

b. Allowing more customers access to current protections by removing the exemptions from supplier social obligations. This will allow vulnerable customers to access the Warm Home Discount (WHD) regardless of who their supplier is. It will also enable more energy efficiency and heating measures to be installed for the benefit of vulnerable households by requiring more suppliers to deliver their fair share of the Energy Company Obligation (ECO).  

Increasing access to the Warm Home Discount and Energy Company Obligation

5. In addition to the primary objective of the Tariff Cap Bill in providing a market-wide, temporary price cap for all domestic energy customers, E.ON believes there is an opportunity within the Bill to enshrine further protections for vulnerable customers. Removing the small supplier exemption (suppliers with less than 250,000 customer accounts) will improve access to WHD, deliver more energy efficiency and heating measures for vulnerable customers under ECO, and lead to a fairer market outcome.

a. We estimate that more than 2 million energy customers (from Ofgem’s Obligation Delivery Report, Oct 2017) are unable to access the WHD, even if they are eligible.

b. Recent rules changes (e.g. obligation trading for ECO and data matching for WHD) have removed the financial and administrative barriers for new entrant suppliers. This makes the present set of exemptions unnecessary and reforms that we propose will deliver better outcomes for vulnerable customers.

c. It is not equitable that the current small supplier exemption allows more affluent customers that have switched to small suppliers to avoid the cost of ECO and WHD, whilst vulnerable customers supplied by other suppliers contribute to funding these schemes.

6. The Energy Act 2011 enabled small suppliers to be exempt from the obligations of WHD and ECO by amending existing powers in the Gas Act 1986, Electricity Act 1989 and the Utilities Act 2000.

7. The Tariff Cap Bill presents an opportunity to enforce the required change through a clause requiring the Government to amend the Statutory Instruments for ECO and WHD which would have the effect of removing the small supplier exemption. We would welcome a discussion with the Bill Committee as to the appropriate drafting of a clause to enact this objective.

What vulnerable customers can expect from E.ON

8. E.ON takes the support of our customers who may be in potentially vulnerable situations very seriously. We have specially trained advisors and a specialised ‘Care & Assessment Tool’ that help ensure we are able to recognise when our customers may be in a vulnerable situation and should be placed on the Priority Services Register, and we provide a range of support options. Depending on the exact circumstances, the solutions we can offer our customers in financially vulnerable situations include:

a. Breathing space to seek advice and support, and a specialist team that is able to visit customers in their home to better understand their situation and offer support and advice;

b. Flexible debt repayment terms, and a short-term interest-free credit mechanism available on pre-payment meters in certain circumstances to remove the risk of self-disconnection;

c. Information and support in accessing a number of emergency funds that are available for the purpose of supporting customers in debt, including E.ON’s own emergency fund; and referral to third parties, such as the Money Advice Service and Citizens Advice, which can provide wider complimentary support and help us get a customer back to a long-term financially stable situation. 

d. Long-term solutions to substantially lowering energy bills, such as free energy efficiency measures, advice, and regular tariff reviews;

E.ON and energy efficiency

9. E.ON is a supporting member of the Energy Efficiency Infrastructure Group (EEIG) and believes that the best way to reduce energy bills for everyone for good is through a significantly increased focus on energy efficiency.

a. A national programme of improving the energy performance of buildings could see UK households saving £270 per year (at today’s prices). Todays’ bills would be about £490 higher without the changes to energy efficiency made since 2004 (UKERC research, September 2017).

b. We support the ambition of the Clean Growth Strategy in improving the UK housing stock. It is now important to turn this ambition into action so that all housing of those most at risk of fuel poverty are at least EPC C by 2030, and ensuring all other homes are EPC C by 2035.

c. E.ON has delivered over 1.1 million energy efficiency measures under CERT/CESP and ECO, with more than 463,000 households helped between 2012 and 2015, and 15million tonnes lifetime CO2 saved by customers through our energy efficiency obligation commitments.

d. E.ON are currently offering free cavity wall and loft insulation to households whether or not they are an E.ON customer. The offer can be found here: https://eoninstall.com/products-and-services/insulation/cavity-wall/

Tariff Cap design and implementation

10. E.ON believes that for the market-wide Tariff Cap to be successful, four key conditions should be met. These are a matter for Ofgem in any cap's implementation, but it is important to bear in mind these conditions during the Bill's progress through Parliament:

a. It should be objectively time limited before returning to the market.

b. The cap must allow suppliers to recover the costs of operating in the market . The PPM and vulnerable price cap methodologies did not achieve this and must be corrected. Specifically the cost of the smart metering programme has been largely ignored, and the allowances for low carbon generation support schemes have been set too low .

c. There must be a sufficient level of headroom factored into the cap to allow suppliers to earn a fair margin and encourage competition even under a price cap. Headroom levels under the PPM and vulnerable caps has severely constrained the levels of engagement.

d. The cap must apply to all suppliers and ensure there is a level playing field between them by removing distortions such as the exemptions small suppliers currently receive from ECO and WHD .

March 2018

 

Prepared 13th March 2018